NewPage rethinking merger after Verso debt restructuring hits snag

Verso Paper’s $1.4 billion acquisition of NewPage Holdings Inc. appears to be closer to falling apart after NewPage made clear last week that it would not waive certain refinancing provisions contained in the original merger agreement, and would be forced to “re-evaluate” the deal if Verso is not able to meet its commitments.

At issue is a portion of the Jan. 3 agreement that called for Verso to initiate a debt restructuring plan that involved offering holders of its debt the chance to swap their notes for new notes with different terms.

As previously reported, Verso ran into some early and unanticipated problems with the restructuring when fewer debt holders opted to participate in the exchange offer, which Verso CEO David Paterson explained in a Jan. 28 letter to NewPage’s board of directors.

Verso twice extended the deadline of the exchange offer, but in the end it appears it was not enough. Verso asked NewPage if it was willing to waive or amend the exchange offer provision in the merger agreement, according to a letter Mark Angelson, chairman of NewPage’s board, sent to Verso last week.

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Angelson said NewPage would not budge on the refinancing provisions in the merger agreement and that if Verso could not meet the conditions, “we will re-evaluate the merger and consider all our options.”

The letter is dated Thursday, Feb. 20, but was filed with the U.S. Securities and Exchange Commission on Friday.

“As you are aware, the NewPage board, in deciding to recommend the merger to its stockholders, gave great weight to the deleveraging nature of the transaction and the debt reduction to be achieved by the Exchange Offers and Consent Solicitations, and this remains a fundamental element of the transaction from NewPage’s perspective,” Angelson wrote. “We do not consent to Verso’s request for a waiver or amendment, and you should not assume that we will waive the Exchange Offer Condition or that we will provide any flexibility whatsoever with respect to debt reduction in the future.”

Attempts to speak with officials at both NewPage and Verso were unsuccessful on Monday.

Chip Dillon, a paper industry analyst and partner at Vertical Research Partners in New York, told the Bangor Daily News on Monday that Angelson’s letter shouldn’t be mistaken for a sign the deal is near collapse.

“It is a negotiating stance. That’s all it is,” he said.

Dillon believes the deal is in everyone’s best interests and remains confident it will ultimately be successful.

“I think it’ll happen,” he said. “All negotiations take time and people have to go through processes and I’m sure that’s what’s going on here.”

Memphis, Tenn.-based Verso employs roughly 1,450 people in Maine at its paper mills in Bucksport and Jay. It also operates a third mill in Quinnesec, Mich. The company’s total annual production is 1.5 million tons of coated paper. Its annual sales in 2012 were $1.5 billion.

NewPage, headquartered in Miamisburg, Ohio, employs roughly 850 people in Maine at its paper mill in Rumford. It also operates seven other mills in Kentucky, Maryland, Michigan, Minnesota and Wisconsin. Its annual production capacity is 3.5 million tons of coated paper. It had $3.1 billion in sales in 2012.

The merger would create a paper company, which would retain the Verso name, with roughly $4.6 billion in sales and nearly 2,300 employees in Maine, nearly a third of the state’s paper-industry workers. It would control 50 percent of the coated paper market in North America.

If NewPage and Verso can overcome the debt restructuring impasse and reach agreement on all other conditions, the merger is expected to close in the second half of 2014.